The Secretary of State to the Chargé in Mexico (Summerlin)

My Dear Mr. Summerlin: I have delayed a reply to Mr. Pani’s informal notes dated May 4 and May 24, 1922, enclosed with your despatches Nos. 5437 of May 5 and 5560 of May 25, 1922, awaiting appropriate action on the part of the Mexican authorities in carrying out the political and administrative program which Mr. Pani has described in general terms. As the regulation of the application of Article 27 of the Constitution of 1917, which Mr. Pani insists is within the exclusive competency of the Mexican Congress, has not yet been established, you may, without waiting longer, reply to Mr. Pani informally in the sense of this instruction.

I shall not undertake to review what Mr. Pani has said with respect to my observations on the propriety of receiving recognition through the signing of a treaty. The point I sought to emphasize is made perfectly clear by Mr. Pani’s own statement that “the signing of Convention number one,” that is, the convention relating to claims as proposed by Mr. Pani, “will signify implicit recognition of the Government of Mexico” and diplomatic relations between the two countries would thus be resumed. I repeat that the question would thus seem to be not as to the practicability of proceeding to effect recognition through the signing of a treaty or convention, but, as I have heretofore said, simply what the treaty or convention should be.

With regard to the proposed Treaty of Amity and Commerce, I note that Mr. Pani still insists that it would be in violation of the Constitution of Mexico, but I am unable to ascertain to what provisions of the treaty Mr. Pani refers in urging this objection. The treaty was intended to do no more than to give in a binding and suitable manner the assurances which General Obregon has been willing, as Mr. Pani’s quotations make evident, to give in personal interviews and letters. In my last communication, I specifically dealt with all the provisions of the proposed treaty to which Mr. Pani has called attention as involving constitutional infringement and I regret that Mr. Pani has seen fit neither to reply to these comments nor to point out any other provisions of the treaty which could be regarded as open to any such objection.

I am therefore compelled to reach the conclusion that the objection to the proposed treaty is not to be found in its terms, which could readily be made to meet any objection of the sort above advanced, provided only it embodied proper assurances against confiscation in harmony with General Obregon’s repeated statements. [Page 675] Rather, as I understand the matter, it is insisted that the signing of such a treaty would not be in harmony with the public sentiment of Mexico and that it would not be ratified by the Mexican Senate.

But if the Mexican authorities will not enter into an appropriate treaty binding Mexico to respect the valid titles which had been acquired under Mexican laws prior to the Constitution of 1917, the question remains in what manner shall such assurances be given. It can hardly be open to question that adequate assurances in some appropriate form should be given, in view of the confiscatory procedure actually adopted despite the explicit promises of Mr. Carranza at the time of his recognition. Indeed, this seems to be conceded in the repeated efforts of General Obregon to supply the needed guarantees by his personal communications. I shall not attempt to analyze these, as cited by Mr. Pani, for the sufficient reason that Mr. Pani himself has clearly pointed out that General Obregon, despite his intentions, has not been vested with authority to make his assurances effective. Thus Mr. Pani, in his note of May 4, opposes the proposed Treaty of Amity and Commerce upon the ground, among others, that it contains “interpretations of some of the precepts” of the Constitution of 1917, “not regulated yet by the Honorable Congress of the Union which is the sole authority to which the Mexican people has delegated power so to do.” And this was but a repetition of what had been said by Mr. Pani in his note of February 9, 1922, which most clearly demonstrated the inefficacy of General Obregon’s personal statements that rights acquired legitimately prior to the Constitution of 1917 should be respected. Thus Mr. Pani said, after referring to General Obregon’s opinion: “But even though the Legislative Power has already eloquently manifested the same opinion, until the Organic Law of Constitutional Article 27 shall be promulgated, the signature of the President of the Republic placed on an international treaty which should fix interpretations of said Article would be equivalent to an undue invasion of the exclusive sphere of the Legislative Power, since provided that a constitutional text establishes a principle its particular effects may only be determined by the Organic Law which regulates it, and this is still to be enacted by the Congress of the Union.” If this limitation can be asserted of the treaty-making power, it is hardly necessary to discuss the inconclusive effect of General Obregon’s interviews and letters.

I note with gratification Mr. Pani’s statement that it is evident that “substantial agreement exists between the American demands and the topics of the political and administrative program” which the Mexican authorities have “adopted in respect of interests of foreigners.” In examining, however, Mr. Pani’s reply to my request [Page 676] for the details of this program, I regret to say that I fail to find that any adequate action has yet been taken.

Without the slightest disposition to question the sincerity of General Obregon’s purpose in making the statements to which Mr. Pani directs repeated attention, it cannot be overlooked that no adequate governmental action has yet been taken to secure the valid titles acquired prior to May 1, 1917; that American citizens have complained, and continue to complain, that their sub-soil rights acquired prior to that date are not being respected; and that Article 27 of the Mexican Constitution is being applied retroactively, even recently, to the injury of American citizens who have been deprived of their property without just compensation. Although General Obregon’s personal promises are declared by Mr. Pani to be a “voluntary and solemn obligation” undertaken “before the entire world,” still it is a notorious fact which can be substantiated by numerous cases, if necessary, that American interests in Mexico have been subjected to arbitrary governmental acts throughout the year and a half of General Obregon’s regime in flagrant disregard of this solemn promise.

It seems to me hardly necessary to review the details of such cases in view of what has already been brought to the attention of the Foreign Office in Mexico from time to time by the Embassy in an effort to procure adequate relief. I am compelled to add that except possibly in rare instances no relief has been extended up to the present time to the American interests concerned.

Mr. Pani’s detailed discussion of recent Mexican legislation with respect to property has received my careful consideration in the effort to find assurance of proper protection for valid rights. This effort has been unsuccessful inasmuch as Mr. Pani recurs to what he asserts to be the indispensable but still unfulfilled condition of congressional action, saying that “in order that a question of such great importance shall be definitely resolved, it is only necessary that the Honorable Congress of the Union shall enact the Organic Law which regulates the application of Article 27 of our Constitution, in accordance with the principle established of non-retroactivity. It is to be expected that this will occur during the next period of sessions of the Congress which will be inaugurated the first day of September of this year.” It thus appears that the Mexican Congress has not yet taken the requisite action and we are still left, as we have been during the last year and a half, with the expression of an expectation that such action will be taken in the future.

I have noted Mr. Pani’s discussion of the Mexican agrarian problem and I fully appreciate the difficulties which that problem involves. I am also deeply sensible of the important public policy that [Page 677] is sought to be prosecuted in securing equitable distribution of lands and adequate opportunities for those who have been impoverished. But I know of no reason, or right, for the prosecution of this policy in a manner which deprives American citizens of valid titles without the payment of just compensation. In other words, when American citizens have made their investments in ranches, grazing lands and other real property under the laws of Mexico, with assurances of adequate protection, they are entitled to that protection and no general considerations of policy can be invoked to justify despoiling them of what is rightfully theirs. The public policy to which Mr. Pani refers should be carried out only in accordance with the fundamental conceptions of justice.

It would seem to be clear that it is not within the province of lawful expropriation either to value properties upon an inadequate basis or to tender compensation in state or federal bonds without assured market value. Compensation cannot be anything short of actual, fair and full compensation.

The Department did not fail to protest against the character of Mexican agrarian legislation when it was in the process of enactment in the Federal Congress, and in various state legislatures, and gave warning that in the event that justice were denied American citizens, this Government would be forced to take the matter up for international adjustment and reparation. In these representations it was pointed out that the provisions of the proposed agrarian laws were confiscatory in character, but nevertheless laws of this sort have been enacted without eliminating their objectionable features. It should be pointed out with respect to the transactions under the agrarian legislation, that these “expropriations” have been made by agrarian commissions whose decisions I understand are subject to the revision of the National Agrarian Commission of which the President ex officio is a member of General Obregon’s cabinet.

I have noted with special interest Mr. Pani’s expectation that “the recent reorganization of the Agrarian Commissions and an adequate regulation” will give the revolutionary impulse “a bent toward legality.” I am also interested in the statement that the Mexican authorities propose, so soon as financial exigencies will permit, to redeem the bonds created by the law to indemnify the expropriation of private property. It must again be noted, however, that, so far as I am advised, properties of American citizens are still being seized or threatened with seizure without any adequate provision for compensation and that the proposed regulation of the expropriation so as to provide just compensation is still an [Page 678] expectation to be realized only through future action not yet even explicitly defined.

I have observed Mr. Pani’s statement that certain banking institutions and the British-owned Mexican Railway have been returned to their owners as well as his statement of the reason for not having returned other railways in part American-owned, which constitute the bulk of the railway properties of Mexico, but I have also noted that he offers no explanation for the failure to return other valuable American-owned properties which are being held by Mexican authorities.

Mr. Pani also refers to the reported negotiations for the resumption of payments on the Mexican national debt. I believe that, since Mr. Pani’s last communication, an agreement has been formulated for this purpose but that it still awaits the approval of the Mexican authorities.

So far as the proposed Claims Conventions are concerned, to which Mr. Pani alludes, as I have already said, we should have certain suggestions to make in respect to their tenor and scope as soon as the fundamental questions to which I have referred are suitably adjusted, and I apprehend that there will be no great difficulty in reaching mutually satisfactory conclusions with respect to these conventions.

If I may be permitted to sum up the situation as to property rights I may say:

(1) It appears that negotiations have been had looking to an adjustment of the claims of the holders of bonds representing the external debt of Mexico. While this Government has not been a party to these negotiations I have learned with satisfaction of a tentative agreement between the creditors of Mexico and the representative of the Mexican authorities who took part in these negotiations.

It is understood, however, that no final agreement has yet been made and that the tentative agreement awaits the approval of General Obregon, who it has been publicly stated has said that it must also be ratified by the Mexican Congress.

(2) It is also understood that American citizens interested in oil properties in Mexico have been in negotiation with representatives of the Mexican authorities for the purpose of finding an agreed basis upon which they will be protected in their holdings and may be able to proceed to new developments of the properties, mutually satisfactory.

This Government has not been a party to these negotiations and is not prepared to discuss the merits of particular proposals, but it has been gratified at the prospect of such an agreement. Again, [Page 679] however, it is understood that no agreement has yet been concluded and whatever has been done is subject to the approval of the Mexican authorities.

(3) No adequate action has yet been taken for the purpose of confirming, and assuring the protection of, valid titles acquired by American citizens prior to the adoption of the Constitution of 1917.

Although it has been repeatedly said by Mr. Pani that the Mexican Congress is at liberty to regulate the interpretation of that constitution, and that it has exclusive authority for this purpose, no such action has yet been taken.

(4) I have not had opportunity as yet to examine the texts of the four decisions of the Supreme Court, but if, as seems to be implied, they follow the decision in the Texas case already announced, in order to form a precedent composed of five decisions upon the same point, they are inadequate to protect American rights against a retroactive and confiscatory application of the Mexican Constitution.

(5) Properties of American citizens have been seized and are threatened with seizure, under the guise of “expropriation” without provision for just compensation.

It would thus appear that General Obregon’s administrative and political program, which Mr. Pani invokes, has not yet progressed to such effective action as could be regarded as a satisfactory substitute for the binding engagements which I have desired in order to assure proper protection to the rights of American citizens in Mexico. If General Obregon thinks it derogatory to the dignity of Mexico to enter into a treaty confirming and establishing in an appropriate way his personal assurances, still, if the purpose is firmly held to respect international obligations and to lay a sound basis for friendly intercourse, I am at a loss to understand why that effective action has not been taken by the Mexican authorities. They have had, and still have, full freedom to accomplish the desired results.

Again I must emphasize the point, which I long ago publicly stated, that this Government has no desire to stand in the way of any non-confiscatory legislation that Mexico may see fit to enact within the province of her domestic authority. If this legislation is of a character which is inhospitable to bona fide investments by citizens of countries other than Mexico, that will be a consequence which may be regretted, but would furnish no ground for objection on the basis of a breach of international obligation. The question relates to valid rights which have already attached. This Government cherishes the most friendly sentiments toward the people of Mexico and the most earnest desire through appropriate cooperation to promote their prosperity. In order, however, that this friendly [Page 680] intercourse may be maintained, it is manifestly important that there should be no question as to the security of valid titles which have been acquired by American citizens in accordance with Mexican laws as they existed at the time of the acquisition, and that, if Mexico desires to expropriate any such property validly held, fair and reasonable compensation should be made. These are regarded as the foundations of helpful and friendly relations and it is hoped that the Mexican authorities will see their way clear to give, in an appropriate manner, the reasonable assurances which this Government has asked.

I am [etc.]

Charles E. Hughes